New tax bill laced with special tax breaks for selected businesses

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The Mall of America will receive up to $250 million in aid to help pay for roads, utilities and parking facilities as part of an expansion that could more than double the size of the existing 4.2 million-square-foot retail and entertainment venue.

Some call it “economic development,” while others view it as “corporate welfare.” Whichever term you prefer, the tax bill passed by the 2013 Minnesota Legislature was laced with special tax breaks for selected businesses.

The biggest tax breaks, and the ones that received the greatest public attention, were massive tax subsidies to aid in the expansion of Mayo Clinic in Rochester and the Mall of America in Bloomington. But they were not alone.

All of this led to some grumbling within the business community. Writing in the Star Tribune last week, Minnesota Chamber of Commerce President David Olson asked, “Why do we have to pick winners and losers in tax reform by raising taxes on all businesses to provide tax exemptions or tax benefits for a few select companies?”

The biggest winner, without question, was Mayo Clinic. The tax bill commits the state to providing up to $327 million from the state treasury for public infrastructure and amenities to help Mayo create its “Destination Medical Center.” As part of the deal, the state also will contribute to a $116 million fund for public transit, and the city and county will chip in $128 million to the project.

Mayo has pledged to spend $3.5 billion expanding and modernizing its Rochester campus, enhancing its ability to attract patients from around the world and employing 33,400 people. No state dollars will be provided until Mayo spends $200 million.

Big winners

The other recipients of state government largesse include:

The Mall of America, which will receive up to $250 million in aid over the next two decades from the metro fiscal disparities tax pool. It will help pay for roads, utilities and parking facilities as part of an expansion that could more than double the size of the existing 4.2 million-square-foot retail and entertainment venue. Details of the expansion have yet to be provided.

3M, which will receive aid through a special tax increment financing (TIF) district that will help build a $150 million research and development building at its Maplewood headquarters. The TIF district will divert property taxes that otherwise would go to the city, county and school district. In addition, 3M will receive a sales tax exemption on building materials that will cost the state $3.9 million.

Baxter International Inc., an Illinois biotechnology and pharmaceutical firm, which will receive a sales tax exemption for building materials needed to renovate a vacant manufacturing facility in Brooklyn Park. The tax exemption will save the company $940,000.

Emerson Electronics, a St. Louis-based manufacturing firm that will receive an $815,000 sales tax break to help renovate a vacant building in Shakopee.

In several cases, these state tax breaks are in addition to other state grants, loans and local tax breaks that also are being provided to these multi-billion-dollar private enterprises.

The Citizens League strongly opposed the raid on the metro fiscal disparities pool by the MOA and the city of Bloomington. Proponents of the measure said it is justified because Bloomington is the largest contributor to the regional tax-base sharing pool, which was created in 1971 to reduce the tax disparities between rich and poor communities in the metro area.

Sean Kershaw

“That’s is a lot like [billionaire investor] Warren Buffett saying he deserves a rebate because he pays a lot of taxes, ignoring the fact that he makes a lot of money,” said Sean Kershaw, executive director of the Citizens League.

Apart of the league, there weren’t a lot of organizations opposing the corporate tax breaks this session. Indeed, the Minnesota Chamber of Commerce was among the groups supporting the Mayo deal, saying it has the potential to be an economic “game-changer.”

After the legislative session, Dane Smith, president of the left-leaning group Growth & Justice, said, “Economists left and right and in between are generally dismissive, if not scornful, of tax breaks and subsidies for specific projects. That said, the Mayo and MOA projects probably are a whole lot more beneficial for the state’s general economic health than all the professional sports stadia we’ve been building in recent years.”

Better investments

But Smith said “this money probably would have been better invested” if it had gone for a broader capital investment package, for higher education investment, research and tuition reduction, or for workforce training.

Arthur Rolnick, an economist and retired senior vice president of the Federal Reserve Bank of Minneapolis, has long been a critic of government tax breaks for specific businesses – ranging with the $800-million Northwest Airlines aid package in the early 1990s to the more recent sports facilities for the Twins and Vikings.

Rolnick doesn’t see any greater justification for the state subsidizing the expansion of Mayo Clinic, much less the other projects that received help this year.

MinnPost file photo by Bill KelleyArt Rolnick

“Like the Vikings, they [Mayo executives] were threatening to go somewhere else,” Rolnick said. “That’s the bidding war game that the sports teams and lots of other companies play. My criticism is not of the CEOs – they are simply trying to get the best return for their investors’ money. My criticism is of Congress because it could end this bidding war.”

Rolnick believes such funding requests should encounter bipartisan opposition. “Democrats should be upset because this is welfare for the rich. Republicans should be upset because this is government picking winners and losers.”

Last December, The New York Times published an investigative series in which it estimated that corporations extract more than $80 billion in subsidies from U.S. states, cities and counties every year.

The Times estimated that Minnesota was spending $239 million a year on business incentives, or $45 per capita. However, that’s a pittance, according to The Times. Texas leads the nation, providing $19 billion a year in corporate tax breaks and incentives.

“The cost of the awards is certainly far higher,” the newspaper said. “A full accounting, The Times discovered, is not possible because the incentives are granted by thousands of government agencies and officials, and many do not know the value of all their awards.”

Some misfires

The incentives don’t always guarantee that the businesses receiving them will stay put. The Minnesota landscape is littered with vacant or underutilized buildings where businesses once received state or local subsidies to create jobs that no longer exist.

Examples that quickly come to mind: the Northwest Airlines overhaul base in Duluth, “Block E” in downtown Minneapolis, the “World Trade Center” and the Macy’s store in downtown St. Paul, and the State Farm Insurance building in Woodbury.

Very often, Rolnick said, state and local governments are asked to provide money “for at-risk projects that the market wouldn’t do on its own. There are so many of these that don’t pan out.”

Sometimes states and cities are fortunate enough to lose the bidding war. In 1985, Minnesota was among 28 states that entered the competition for a new General Motors plant to build Saturns. Led by Gov. Rudy Perpich, Minnesota put together a package of 30-year tax breaks and other incentives totaling a whopping $1.2 billion.

Tennessee ultimately won the bidding for the plant, which operated for just 17 years before GM ended the production of Saturns in 2007. GM has since reopened the plant for the production of some Chevrolet vehicles and engines.

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About the author:

Steven Dornfeld reports on government, politics and public policy issues. He has been a government reporter for the Minneapolis Tribune and the St. Paul Pioneer Press. From 2003 to 2011, he was the Metropolitan Council's director of public affairs.

Comments (11)

Regardless of the good or bad lets look at one that slipped thru the crack as we have all read recently. A strong business in Thief River Fallls has chosen to expand in Fargo. Why? Who was watching or was anyone listening? Or was this just that outstate is not important to some people and no one known where Pennington County is? This goof by someone should be an eye opener to many people or perhaps to none since it did not have the interest level of some of the others. Lets hope this is not just another sign that Metro and big message projects get attention and where jobs are outstate no one cares. The legislature must support all of Minnesota but it seems to be unable to look beyond the special interests. I would like some feedback on how this one was missed and an approch to not let more of these situations occur.

I admire the Citizens League for its opposition to the Mall of America and Bloomington subsidy from the fiscal disparities fund–such a shift in where that money goes contradicts the entire structure of that 1971 act (Bloomington gives a lot to the fiscal disparities fund because Bloomington has a very strong commercial/industrial tax base that takes in a lot; the money intentionally goes to those who Don’t Have).

That’s why it’s unfortunate that the spokesman for the Citizen’s League, which is alone in its public criticism of the legislature’s giveaway for the Mall of America, refers erroneously to Watten Buffett’s stand on taxation. My impression has been that he doesn’t say he should get rebates because he pays a lot of taxes. He says he should pay more taxes, because he makes so much. That’s what makes him heroic among the whiny business class in the U. S., for whom there never was a tax they thought healthy or wise.

Why return to the who creates jobs issues? Jobs come from both ends and lets realize that.Innovation is the key and sometimes ideas generate markets and then markets grow. The point made my eariler comments was that a great business which created jobs in northwestern Mn_Pennington county– was looking to expand and our leaders could not seem to recognize that grow would be an opportunity. Where was DEED– an silent state function. Where were incentives? Do we care? This is not about off shore funds it is about jobs and investment in Mn in a competitive situation. Again why did this happen? Seems to me we are more concerned about entertainment and metro functions and not about overall Grreater MN. I recommend a remedial course in Mn history understanding that there are people in all 87 counties not just the 7-9 metro counties. Supply side vs. conusmer side discussion will continue forever jobs for Mn need a competitive environment and attention that is the topic for discussion.

Of COURSE this is welfare for the rich. It’s also “crony capitalism” writ large, VERY large.

No one — no one — who voted for this travesty should be able to utter the words “free market” for the rest of their lives without being laughed out of the room. Yes, I do mean DFL as well as Republican.

Does the Mayo Clinic provide its health care services free of charge to all? If not, it doesn’t deserve this tax break. Its CEO’s threat could just as easily have been met by a threat — with teeth — from the state’s attorney general, and/or other officials in position to make the individual and collective lives of Mayo executives stressful, indeed. It should have been done, and with alacrity.

The same, if not more, should be done to MOA executives. I went there once as a visitor, before I became a resident. It’s a very large mall. Everything, and I do mean “everything,” that I need to live a satisfying life of modest comfort befitting a retiree can be obtained without ever going to the Mall of America. In fact, I’ve done just that. After that initial visit, I’ve never seen a reason to go back.

Other than another threat to go elsewhere, there’s no justification — none — for the 3M TIF district. City, county and school district taxpayers will have to make up the difference — or see their schools and municipal services take the hit.

I do understand what Sean Kershaw means, but the only problem with his remark is that, on the record, Warren Buffet has said he ought to be paying MORE taxes, not less.

Given the fact that there’s no binding agreement between Mayo and the state, saying specifically that Mayo will, in fact, stay in Rochester forever, or a similar agreement, adjusted for circumstances, for 3M, Baxter or Emerson, the state is handing out free money to a very select few businesses with no collateral, no binding promise, no nothing in return. These companies and entities are blatantly robbing the public, with the help of the legislature and the governor, and it’s all happening right in front of us. A brief perusal of the second paragraph under “misfires” shows the folly of this approach.

If the “free market” won’t finance your project, it doesn’t deserve to be financed. The “market” apparently believes the risks are too great. If that’s the case, why should the public’s wallet be emptied in order to pay for some corporate board’s “vision” of the future for what is, after all, a purely selfish enterprise. I’d guess that most of MinnPost’s readers could post at least a small profit, for a few years, if the legislature would only give them $250 million.

When Mayo begins to treat ALL patients for free, and 3M provide its products to the public at no cost, and the MOA provides retail space for anyone who wants it for a nominal fee to cover the cost of utilities, only THEN will there be some sort of justification for this grotesque debasement of the democratic process.

The mantra of “jobs, jobs, jobs” doesn’t come close to providing an ethical rationale for these tax breaks. Demand is what drives jobs, and demand can be for products of all kinds, produced everywhere in the state. Prostitution and drug-dealing provide jobs, too, but the public at large is not being asked to subsidize them. Legislators and Governor Dayton should be ashamed.

But Smith said “this money probably would have been better invested” if it had gone for a broader capital investment package, for higher education investment, research and tuition reduction, or for workforce training.

Why not make the taxpayers a “special interest group” and let them keep their own money rather than having government “invest” the taxpayer’s money for them.

I haven’t heard anyone ask if the ever growing medical-industrial complex needs a subsidy. Encouraging healthy behaviors can lead to lower medical costs for the economy as a whole.

And don’t tell me the government shouldn’t tell us what to eat. They’ve been doing that for decades; by subsidizing wheat, corn and soy beans they have raised the relative price of fruits and vegetables.

In response to Connie above, Sean Kershaw was NOT saying Buffet wants a tax rebate. He was saying that Bloomington and the MOA asking for a huge chunk of fiscal disparities cash would be the same as if Buffett asked for a tax rebate simply because he paid so much in taxes.

Thanks Connie for your point– my intent was in line with Steve’s later comment. I should have been more careful.

I wasn’t trying to argue about tax rates overall needing to go up or down.

My underlying point was that paying a lot in taxes — as the only factor among many — is a weak argument for expecting a direct subsidy back from the government. Paying more in taxes is generally a sign of having made more money and been more successful — not needing a subsidy from the government.

Lots of rhetoric but not much presentation of alternatives to grow the Mn economy and jobs. Also my point about greater MN with the exception of Rochester tells me that the metro focus is the only thing most of the commenters can address. I use the Thief River Falls-Pennington county situation as an example of bias that is misplaced. Government incentives for jobs when well done is a great deal for the tax payer and can be done in partnership with the free market. Those of us who care about Mn and jobs work both sides and don’t whine we seek value and result. Seeing the loss of expansion of a unique business that has done much for an area is a sign of no attention by our state decision maker and definitely shows preference for metro vs. State — wake up please!!
Dave Broden

Broden’s comments show why business has state and local governments at a huge disadvantage. Who wants the blame for jobs moving? The public seems to think politicians have control of whether jobs come or go, politicians know this, and business knows this. When jobs leave or don’t come, no one wants to hear about principles. That’s why business makes state and local governments engage in a bidding war. Does any business above mom and pop size pay for its facilities anymore? Doesn’t seem like it sometimes. Probably most set up according to where they find the facility they need, proximity to transportation, customers and vendors, but within their parameters, many seem to want the public to pay the cost.